Banks behind schedule on SCV plans as marketing misses out

Although plans had to be drawn up by 31st July and the actual SCV built by 31st December, a recent survey discovered that half only started work on this major project during 2010 itself. Even worse, only 59 per cent of those surveyed with responsibility for data in their company were aware of the regulatory requirement.

As part of reforms to the banking sector, the Financial Services Compensation Scheme mandated the creation of SCVs to allow it to pay back customers in the event of a bank collapsing. It represents one of the largest data management initiatives to be undertaken by a single sector in a single year, with an estimated cost of around £1 billion.

Yet a survey commissioned by DataFlux and carried out by JWG has found surprising gaps in readiness to meet the deadlines. Even where plans were in place, more than eight out of ten banks intend to do the bare minimum, rather than pursuing a SCV solution that might deliver strategic advantage. This is underlined by the low level of marketing access to the customer views being created.

The survey drew responses from 61 respondents in 44 firms across all types of regulated firms - banks and building societies, investment managers, integrated financial services providers, insurers and mortgage brokers. It found that 61 per cent did expect to meet the deadline for compliance, despite a slow start, while only 11 per cent firmly believe their company would not be ready in time.

Achieving compliance might be easier for those organisations which are aiming for “box checking” solutions. This basic approach is being pursued by 29 per cent of deposit takers. For the majority, a basic SCV toolset is likely to be created that addresses business drivers as well as compliance, with 57 per cent planning this kind of solution.

Only 14 per cent are aiming a strategic data resource that is likely to yield competitive advantage. Notably, all of this group have highly complex infrastructures and half of them started work on their SCV in 2009 (with a handful already planning SCVs back in 2007 before the

Marketing is a key function delivering ad

ded value from data resources such as an integrated view of the customer. Yet as Chart One shows, it has the second lowest likelihood to use data from the SCV once it is created. (IT came lowest, but the FSCS SCV is not an operating or business system that it needs to manage.)

This marginalisation of marketing is built in from the start, with only 14 per cent of banks involving the function in their SCV build. Instead, most projects appear to be focused more on back office outcomes, giving risk, finance and treasury access to better customer data and supporting operational areas with this information set. Just over one third do say the database will be used by revenue generating units, however.

If gaining a strategic advantage should be the most positive outcome from SCV projects, missing the deadline for compliance could bring some negatives. Chief among these is likely to be greater scrutiny by the Financial Services Authority (or its replacement), backed up with fines (see Chart Two).

Commenting on these fears, PJ Di Giammarino, founder and CEO of JWG, said/ “The customer data issue isn’t going away anytime soon. Accurate customer data is critical to the regulatory tsunami as it is fundamental to controlling risk, protecting customers and spotting market abuse. Five high profile firms have recently been fined a total of £7.3 million by the FSA in relation to data errors. The survey findings suggest there will be significant penalties for those companies that neglect the development of a single customer view.”

The short timescale for compliance with the FSCS SCV requirement is a serious challenge for deposit takers. It is exacerbated by the fact that relatively few banks have built enterprise-wide integrated customer data warehouses or, where these do exist, are able to provide the snapshot of exposure which is at the core of the current programme.

In trying to remain compliant, these companies are coming face-to-face with some harsh realities about their information management. Data issues were identified in the survey as presenting the biggest problems to the SCV implementation plans, from getting data to maintaining its quality and simply processing it.

SCV also involves a substantial degree of specialist skill and resources in order to carry out the matching and deduplication routines. These often do not exist within companies and are recognised as a problem area. The timescale and infrastructure required are also barriers.
Reflecting the marginal involvement of marketing and the limited extent of revenue generating functions having a part to play in the SCV project, banks are also struggling to demonstrate that there will be other, non-regulatory benefits to be gained (see Chart Three). Threats of fines may stimulate action, but the motivation to continue to the conclusion often comes more strongly from positive incentives, such as seeing higher levels of revenue or lower churn.

Colin Rickard, managing director EMEA, DataFlux, commented: “This report highlights a shortfall in spending required to create SCVs in order to meet the FSCS requirement. This will have to be corrected in the second half of 2010 or firms risk facing significant fines and further reputational damage during 2011. It is clear that data quality and data integration are key compliance challenges.” Data managers at the heart of the SCV project have every reason to feel both neglected and under-resourced. Many of them point the finger of blame at the regulator itself, saying there has been a lack of appropriate and clear guidance (see Chart Four). The FSA has not issued a technical definition of what the database needs to be like, for example.

Data quality is the other big barrier for SCVs as banks discover that information in their existing systems is not up to the task. That may explain why there are complaints about a lack of resources and support being provided. Top-down support by chief executives does not appear to be translating into the right drivers for projects on the ground.

While banks are aware that non-compliance will have consequences, there is still a gap between having the fear and doing it anyway. Perhaps the absence of compelling business benefits from the SCV - especially the lack of marketing involvement - is to blame for an impending missed deadline.